Hooray for you! You are ready to buy a home. Whether it is your first home or a second home, remember that this will be one of the biggest purchases you will ever make in your life. It sounds wonderful right, to go out and find the home of your dreams? But the journey to home ownership is full of obstacles. Review the pitfalls below to get the most bang for your buck when buying a home:
No Budget for Extras
Many people think of budgeting for a mortgage payment, taxes and insurance. Not so fast! You also have to include, water, garbage, utilities, cable, etc. Some areas even tack on property assessments. Financial Advisor, Cary Carbonaro and author of The Money Queen’s Guide, says “Know your numbers before you start shopping for a mortgage”. Do your homework and make sure that you know ALL of the expenses of operating a home.
Your Credit Score is Too Low
A high credit score means that you get the best loan at the best rates. Try to get your FICO score at 720 or above. If not, be prepared to have a higher payment. You can get a free credit score online annually at www.annualcreditreport.com.
Your Down Payment is Less Than 20%
You also get a good loan if you put down 20%, or more, of the house value as the down payment. Any less than that, you will have a higher monthly payment due to a higher interest rate. Banks don’t want a risky borrower and a bigger down payment can help reassure them.
You Did Not Get Pre-approved For a Loan
Once you’ve got your credit score and your down payment, you can go into any bank and they can pre-approve you for a loan of an approximate amount. By having a pre-approval statement in hand when looking at homes, you will be respected as an attractive and serious buyer. This is especially important when there are multiple bids.
You Put in an Offer Without Contingencies
Go ahead and make an offer on a home you like and that you can afford, but make sure that you have contingencies in place that allow you to back out if the home doesn’t measure up. For example, you put in an offer with the contingency that there is no work required of more than $10,000, or that the foundation is bolted, or that all the appliances are in working order and included in the price. Also, it is worth it to spend $250-$600 for a licensed contractor to go over the home in detail and give you a report of all the short term and long term repairs that will be necessary. For example, if the roof leaks, you will have to factor that into your purchase price. If the house will need a coat of paint in the next 5 years, you can factor that into your budget. The point is to find out what condition the house is in. Your real estate agent can help you weigh what repairs are necessary to ask for a reduction in price and what are not.
You Did Not Shop Around For a Loan
You may think that your cousin Vinnie will get you a good mortgage. Think again. Banks, loan brokers, mortgage consultants don’t offer loans for free. It’s up to you to figure out how they get paid and how much you will pay. All loans are not created equal. Points, fees, mortgage insurance, title insurance, etc. are all estimated on a document known as a good faith estimate. This document is an estimate of all the costs of getting the loan. Some of these, like the title insurance, you can get yourself online, vs. using the party the lender suggests, and save money. However, you only have 30 days to shop around and get a loan while your home is in escrow. If you are smart, you will already have done the legwork and know what type of loan you are going to get and where you are going to get it. Check out www.bankrate.com for the current rates in your state.
You Agreed to a Closing Bait and Switch
This is when you take off of work to go sign the papers and get the keys to your new home. You get to the title office and there is a stack of papers you need to sign. The problem is that you thought you had a 3.50% fixed rate loan for 30 years and the paperwork says that the rate is 3.65%. Not a big deal, so you sign it anyway, right?. Not quite, That small percentage can be a five figure addition to the cost of your home. Don’t sign papers that you did not agree to! It’s worth it to wait or walk away and have them correct it.
Congratulations! You made it through the home buying process. Avoid these pitfalls and you will easily get the home that you want, at the price that you want and can afford. That’s a home buying experience you will remember for a long time.